Monetary policy uncertainty and firm dynamics

• In the FAVAR, Monetary Policy Uncertainty (MPU) shocks are recessionary. Firm entry decreases and firm exit increases amplifying responses to MPU shocks. The stock price declines, while TFP in response model with dynamics replicates FAVAR-IRFs outperforms standard medium-scale DSGE model. This paper uses a FAVAR external instruments show that monetary policy uncertainty recessionary associated an increase firms' decrease entry. At same time, medium run. To explain this result, we build up estimate featuring heterogeneity endogenous exit. These features crucial matching empirical responses. baseline alternative without reproducing implies larger effect of shock on real economic activity.